Good article from the WSJ

Excerpt-

Pandora Files for IPO, But Can It Ever Make Money?

Pandora mostly has been unprofitable.

That’s not totally a surprise, of course. The music royalty fees long have been a question mark about Pandora’s business. Heck, even Apple can’t make real money from iTunes. Pandora fought hard several years ago to rework the music industry’s royalty fee structure. But now we know just how much those royalties are denting Pandora. On a percentage basis, those costs are down from about 80% of revenue in the fiscal year ended Jan. 31, 2009. But still: How sustainable is Pandora’s business if it has to pay out half or more of its revenue just for the rights to music?

Pandora doesn’t expect the problem to abate soon. The company said it expects its revenue growth rate will slow, because of competition and the “maturation of our business.” And here’s what the company said in its IPO filing about its profits (or lack thereof)

My wife as well has an internet only subscription. There is no doubt more and more people are going that route. But contrary to what you and Spencer think, that doesn't make the internet model more profitable.

I don't think anything. I never said it would be more profitable. I am simply asking questions about the future. As humans, whatever we think we know now, will inevitably be wrong in 10 years. It doesn't matter if it costs more to deliver (I'm not sure it will) to whatever the customers prefered method of delivery is. You need to cater to end users needs if you want to be successful. If customers want SiriusXM to be delivered by whatever newfangled wave/pipe is available in 10 years, SiriusXM will have to accommodate.

Originally Posted by MUSCLE13

The expenses are outrageous. More listening higher expenses. Thats why Sirius is always cutting off the internet player after a certain time limit and you have to log in again.

Today it is. Maybe tomorrow it wont be. There is nothing that says they can't renegotiate. If SiriusXM can double what they pay in royalties, by quadrupling their internet subscriber base, it would behoove the RIAA to help them do that.

Originally Posted by MUSCLE13

The RIAA negotiations that Pandora and all of internet radio faces in 2015 are a real uncertainty. It seem that the trend is higher royalty costs every year. Streaming and royalty costs are absolutely brutalizing the free model and the paid model as well. So will no barrier to entry.

The RIAA has to know that they cannot cut off their nose to spite their face. They need to keep legitimate paying companies in business. If they kill the SiriusXM's and Pandora's of the world, people will just pirate radio and they will lose a huge chunk of revenue.

Charles what you just wrote was the opinion of many in 1994 when internet radio started. Mark Cuban got out with about 5 billion from Yahoo for Broadcast.com. Of course they never made any real money and the whole model fell apart. Smart guy that Mark Cuban.

Its a tough tough business. One of the worst media businesses I have ever seen. Nobody can seem to figure out how to make money in 17 years. I do think it helps retention and ARPU for Sirius sat subs though. Standalone, don't know if it will ever work. My biggest concern is no barrier to entry. I see the smartphone scenerio being almost identical to the PC scenerio of the 90s with a flood of new entries paid and unpaid. Thus fragmenting the entire internet listening audience. If you and Spencer can figure out a way for it to work I would love to hear it. I'm sure Mel as well as many other radio CEO's are trying to figure out how to get it done. Nobody has yet.

Not that I care or have a dog in the fight but, I think internet radio works by consolidating all the fragmentation, negotiating a royalty deal that make sense, and charging a premium upgrade fee. Like any other business, you have to execute.

There is no room in the market for more than 2 internet radio services...right now there are probably a dozen. Eleven of them are wasting their time and money and the time and money of the front runners. Much like Sirius and XM were killing each other.

Maybe Pandora uses a cash infusion to buy the #2 service and ends the game, I dont know. All I know is, it just makes sense for the RIAA to keep one of these services alive.

Charles there are close to 1 million internet radio stations today. And that number is growing. There is no barrier to entry. Its the single biggest reason nobody made a business of it online with pcs in the 90s and they are surely migrating to smartphones.

Interestingly enough, in their S-1 Pandora even admits that increased competition is coming and will effect future revenue growth.

I understand that there are a million stations but, there are only a dozen or so solid/credible services that aggregate multiple stations. I wouldn't consider one single radio station stream a threat to anyone.

I understand that there are a million stations but, there are only a dozen or so solid/credible services that aggregate multiple stations. I wouldn't consider one single radio station stream a threat to anyone.

It is probably the worst part of the model. Even worse than the streaming and royalty expenses. Eventually all those stations will be on smartphones and cause fragmentation of the internet radio listening audience. No barrier to entry and the resulting fragmentation can literally destroy a media business model.

Looks like Slacker is going to a subscription model. More internet radio problems

Excerpt - Slacker Raises $3 Million, Preps On-Demand Launch

Slacker has raised $3 million in debt funding according to a SEC filing. This adds to the growing number of music startups that have gained additional funds in 2011. While Slacker is known more commonly as a rival to Pandora, in the coming months, they will be taking MOG, Rdio, Rhapsody, and Thumbplay Music head-on in the subscription music service sector.

No launch date is confirmed yet, but there’s a high likelihood that Slacker will go live before Spotify comes to the US. Don’t fooled though. The fact that the media isn’t tracking Slacker’s every move like they do Spotify doesn’t mean anything.

There will be plenty more to come. No barrier to entry is going to weigh as heavily on smartphones as it did on pcs for internet radio. I read an article the other day that basically said what does an industry do in a world where music is so readily available it becomes worthless.